BTC REPORTS: North Carolina's Broken Economy - Hard Work Not Enough to Climb Out of Poverty

By Allan Freyer and Tazra MitchellBudget & Tax CenterFebruary 2014

As the U.S. marks the 50th anniversary of the War on Poverty, many critics point to the persistence of need as evidence that government safety net programs and economic development efforts are ineffective. The opposite is true, however. These strategies have moved millions of Americans out of poverty—but they have been insufficient to deal with an economic transformation that is growing poverty-wage jobs and losing middle-wage ones.

North Carolina’s economy, like the national economy, has undergone a significant transformation from relying on manufacturing to relying on services. As a result, thousands of low-skill jobs that provided a critically important ladder out of poverty and into the middle class for three generations of North Carolinians have disappeared and been replaced with jobs in hospitality, retail sales and other services that pay much less. As a result, the new economy has created thousands of jobs that pay too little to keep full-time workers out of poverty and offer fewer chances to improve their earnings over the course of a lifetime. As a result, household incomes have plummeted over the last decade, and the nation’s economic safety net is all that stands between too many families and destitution.

Where poverty persists in North Carolina, it is because the economy failed, not because the War on Poverty failed. And cutting away the safety net, as North Carolina has begun to do, will only make the problem worse by deepening economic hardship and removing what little support remains for helping workers climb out of poverty. Rather than investing in schools, colleges, job training and other policies that can help create good-paying jobs, North Carolina lawmakers have slashed the income taxes that support these cornerstones of a strong economy. At the same time, they have eliminated a vital tax credit for low-income working families and sharply reduced unemployment compensation, threatening to push thousands of hard-pressed North Carolinians further into poverty.